Trickling down


The Storm Lake City Council cut its commitments to lake restoration, economic development and marketing, public safety and the arts for next year as the tax burden on residential property owners grows by 9%. Students at the three public universities will pay more for tuition again next year. Superintendents in Storm Lake and Alta-Aurelia, both growing districts, are preparing for staff cuts over the next couple years unless funding improves. Small capital projects for lake improvement have been mothballed by the state.

Government at all levels is suffering, mainly for a commercial and multi-residential property tax cut passed by the Iowa Legislature 2013, which started to be felt last year, and will hurt like heck next year.

Property taxes on residential properties are rising in relation to all other classes, according to an exhaustive analysis of the commercial tax cuts authored by Jon Muller at the progressive blog site Anyone with a serious interest in property taxes and local government financing should consult this excellent post for a better understanding of the system and how tweaking one part can result in bad amplifications elsewhere. Muller is an economic analyst who worked for Iowa Farm Bureau, the Iowa Association of School Boards and Gov. Tom Vilsack. He is non-partisan in the essay.

He shows in charts how, in 1980, commercial and residential properties contributed about the same share to the property tax load. Over the next 30 years, residential and commercial took a growing share of the load away from ag land and buildings. The commercial share spiked from 2000-2010, while residential grew more steadily. In 1980 residential accounted for about 35% of the property tax load, while commercial contributed about 25%. By 2010 residential had grown to nearly 50%, commercial grew to 30% and all other classes (ag, utilities and other) declined precipitously. By 2010, after some banner marketing years, ag had declined to just 15% of the property tax share. In 1980 ag stood at about 30%. Utilities dropped from over 10% to about 2%.

The residential share has skyrocketed to nearly 55% over the past three years, while commercial dropped to the mid-20% range. Ag steadied while utilities dropped again to near zero.

In sum: Homeowners are bearing the increasing brunt of the property tax burden over the past 30 years, and especially over the past three.

What’s more, mutli-residential rates are going down while single-family homes are going up. Multi-residential demands more from the property tax base in terms of school, public safety and street services than a single-family dwelling does, but gets by on a lower rate.

Here is how Muller describes the legislation:

“It delivered handsomely on its promise to cut taxes for commercial property owners, at least in the short run. It provided modest help to the working poor. For its $500 million (plus) price tag, it has accomplished little else.”

(The spiff for the working poor was an increase in the Earned Income Tax Credit, at about $30 million.)

The promise was to increase economic activity in Iowa by cutting the commercial and apartment tax load. That hasn’t happened, as the legislature struggled again this year with static revenues.

As an independent small business that owns commercial property, we enjoyed a property tax cut. But the increase on the two owners’ home taxes (modest homes, at that) ate up the difference. It has not caused any new commercial construction in Storm Lake. We are begging multi-residential developers to come in, but they appear unimpressed despite the tax sweetening and strong demand for blue-collar housing.

If we had cut residential property taxes by $500 million, we suspect you would notice increased economic activity. Investors in commercial property put the dividend in their pocket. A homeowner spends it on shingling.

We have cut corporate income taxes. We have cut the sales tax on manufacturing equipment. We have cut taxes on agland while prices rise. We have cut personal income tax rates. We abate taxes entirely for new industry. Yet, Iowa’s growth rate has remained anemic as people flee the state in search of a decent-paying job. They make so little they can’t afford to buy a house in Storm Lake, and if they could they couldn’t afford the taxes. We increase fees, and local sales taxes felt most by the working poor.

These tax shifts are by design. They are driven by the investor class, people who own downtown property and farmland and apartment complexes. Meanwhile, spending shifts also occur. The average stiff who wants to fish off Chautauqua Park jetty after a long day welding farm wagons risks breaking his ankle because of a state moratorium on small capital projects. The family working in the packinghouse will pay $600 more in payments next year to send Junior to Iowa State. Class sizes in Storm Lake probably will grow, with fewer teacher aides helping.

That’s what happens when state government tries to use the tax code to favor one class over another. The working class is getting the shaft.